S&P affirms India's sovereign rating at 'BBB-' with stable outlook

14 Feb 2020 Evaluate

Global ratings agency Standard and Poor's (S&P) in its latest report affirmed India's sovereign rating at 'BBB-' with stable outlook and said that the country's Gross Domestic Product (GDP) growth is likely to gradually recover towards longer-term trend rates over the next two to three years. 'BBB' rating refers to adequate capacity of the rated entity to meet its financial commitments. It said ‘despite a notable deceleration in India's economy in recent quarters, we believe its structural growth outperformance remains intact. Real GDP growth is therefore likely to gradually recover toward longer-term trend rates over the next two to three years’.

As per the report, the economic growth rate to improve to 6% during 2020-21, 7% in the next fiscal and 7.4% thereafter. It expects India's economy to continue to outperform peers at a similar level of income, despite a recent slowdown in real GDP growth. It added that supportive monetary, fiscal, and cyclical factors should support economic recovery, with real GDP growth averaging 7.1% in fiscals 2020-2024. Though, it pointed out that India's fiscal position remains precarious, with elevated fiscal deficits and net government indebtedness. It said fiscal deficits have exceeded the government's plan, and added that it expects limited consolidation over the next few years.

S&P Global Ratings affirmed its 'BBB-' long-term and 'A-3' short-term unsolicited foreign and local currency sovereign credit ratings on India. The outlook on the long-term rating is stable. Providing rationale for its rating action, S&P said the ratings on India reflect the country's above-average real GDP growth, sound external profile, and evolving monetary settings. The stable outlook reflects S&P's expectation that India's growth will be strong, the country will maintain its sound net external position, and its fiscal deficits will remain elevated but broadly in line with its forecasts over the next two years.

Further, ‘upward pressure’ on the ratings could build if the government significantly curtails its fiscal deficits, resulting in lower net indebtedness at the general government level. Upside potential on the ratings could also increase if India's external accounts strengthen substantially. Also, the downward pressure on the ratings could emerge if India's GDP growth falls well below the agency's forecasts, causing it to reassess view of trend growth; net general government deficits rise further from their currently elevated levels; and political developments materially undermine economic reform momentum.

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